Cairn India Misses Estimates as Rupee, Employee Costs Cut Profit

Rakteem Katakey

January 23, 2014, 7:24 AM EST

Cairn India Ltd., operator of the nation’s biggest onshore oil deposit, posted the smallest profit in three quarters and missed analyst estimates as staff costs climbed and a stronger rupee led to currency losses.

Group net income fell 14 percent to 28.8 billion rupees ($465 million) in the third quarter ended Dec. 31 from 33.4 billion rupees a year earlier, the Gurgaon, India-based explorer said today in a regulatory filing. That missed the 30.4 billion rupee median of 29 analyst estimates compiled by Bloomberg. Total sales rose 17 percent to 50 billion rupees.

Cairn India sells crude oil denominated in dollars. A rise in the value of the rupee decreases the company’s earnings when converted to the local currency. Foreign-exchange losses in the quarter were 1.3 billion rupees, compared with a 2.4 billion-rupee gain a year earlier, according to today’s statement. The currency gained 1.1 percent during the quarter.

The explorer, acquired by Vedanta Resources Plc for $8.67 billion in 2011, plans to spend $3 billion in the next three years to discover oil pools and boost production at its biggest fields, located in the north-western state of Rajasthan.

The shares rose 0.9 percent to 324.65 rupees in Mumbai. They’ve decreased 1.1 percent in the past year, compared with a 6.7 percent gain in the benchmark S&P BSE Sensex. The earnings were announced after trading hours.

Employee-costs climbed to 1.9 billion rupees in the quarter from 155.3 million rupees a year earlier after it changed the method of valuing shares given to staff, according to the statement. The company wrote off 1 billion rupees in exploration costs compared with 277 million rupees a year earlier. These drove up total expenditure in the quarter by 15 percent to 20 billion rupees.

Output Climbs

Total output from Cairn India’s fields rose 10 percent to an average 224,493 barrels of oil equivalent a day, according to the statement. Average production from the Rajasthan block was 186,359 barrels of oil equivalent a day in the quarter, 10 percent more than a year earlier.

The company sold oil and natural gas at an average $94.90 a barrel of oil equivalent in the quarter, unchanged from a year earlier, according to the statement. The average price of Brent oil in London was $109.35 a barrel in the quarter.

Cairn India sells crude at rates linked to Brent oil prices, unlike state-owned Oil & Natural Gas Corp., which is required to bear part of the country’s fuel subsidy. Cairn India is proposing swap deals in the commodity to help skirt an Indian government ban on exports as it seeks higher margins.

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